The yellow metal closed the second quarter of fiscal 2017 with an average price of $1,256.963 per ounce on the London Bullion Market; however, for Yamana Gold (AUY, Financial) -- that can mine the metal at profit from $1,150 per ounce -- it was not enough to beat analysts’ expectations on both earnings and revenue.
According to the gold mining company’s second quarter report for fiscal 2017 that was released Thursday, July 27, earnings per share – adjusted to one-time charges (including write-downs, other provisions and unrealized non-cash tax on foreign exchange losses) was nil versus an EPS – as forecasted by the average analyst – of 1 cent (U.S. Dollar), as you can see in the picture below.
Source: Yahoo Finance
The negative margin of 1 cent between what has been reported by Yamana Gold and what was forecasted by the average analyst, produced a negative surprise of 100%. We will see how the market will react to this result and what kind of impact this will have on the market value of Yamana Gold.
The mining company also missed analysts’ expectations on revenue. While analysts expected that Yamana Gold would have closed the quarter with revenue coming in at $429.24 million, the company reported revenue of $428.1 million. Yamana missed expectations by $1.14 million and the difference produced a negative surprise of 0.27%.
During the quarter, the company sold 236,050 ounces of gold produced at its six producing mines, a 1% decline year over year, while the total volume of ounces sold on a consolidated basis – including also the production from BrioGold – was 278,187, down 4% from the comparable quarter of fiscal 2016. From the sale of one ounce of gold, Yamana realized an average price of $1,268 which was $1 lower than the average price per ounce of the yellow metal sold by the miner during the same quarter of fiscal 2016. Revenue coming from the sale of the yellow metal was backed by a quarterly production of 275,437 ounces (down 5% year over year), of which 88.8% was the production attributable to Yamana Gold, that is the volume of ounces that the company produced at its six producing mines. The latter was up 3% from the second quarter of fiscal 2016. It was a robust growth year over year, also thanks to a record in the production reported by the company at Jacobina mine that with its 32,000 ounces of gold was the highest since 2010. Year over year increases at Chapada, Canadian Malartic (50%) and Jacobina offset decreases in the production at El Peñón, Gualcamayo and MInera Florida.
The company also produces and sells silver and copper. During the quarter in question Yamana Gold produced 1.32 million ounces of silver and sold 1.3 million ounces at an average realized silver price of $16.89 per ounce, flat year over year. The production and sale of silver was down approximately 22-23% compared to the second quarter of 2016.
Concerning the red metal, at an average realized copper price of $2.52, 19% increase year over year, the revenue per pound of copper was $2.27, since a total volume of 25.2 million pound of copper was sold in the second quarter of fiscal 2017 versus a volume of 26 million pounds sold in the comparable quarter of fiscal 2016. Compared to one year ago, the production of the red metal increased by 25% to 29.1 million pounds in the second quarter of fiscal 2017.
Compared to the same quarter of one year ago, Yamana gold reported a 2.8% decrease to $372.9 million in total cost of sales while General and administrative expenses increased by 9.7% to $5.3 million and exploration and evaluation expenses were flat at $5.3 million.
The company realized an adjusted cash flow of $127.2 million from operations, down $6.3 million year over year. However, the cash flow from operations of the comparable quarter of 2016 was adjusted to $56.0 million as advance payment for purchase of metal in the quarter.
Yamana Gold closed the second quarter of fiscal 2017 with an amount of $132.3 million in cash on hand and securities, plus a line of available credit of $823.6 million. The amount of cash on hand and securities was up $35.83% from the previous quarter of fiscal 2017 thanks to the cash flow from operations, net of funds used by the company in investing activities and the proceeds of $26.7 million that came from the sale of ordinary shares of Brio Gold.
At June 30, 2017, the company had approximately $1.6 billion in total debt. Over 2017 and 2018 the company has to pay back an amount of $111.3 million. In addition, Yamana Gold has commitments of $452.8 million according construction and service contracts.
For full fiscal 2017, Yamana Gold expects to produce 940,000 ounces of gold and guides to use funds for a total amount of $204 million as sustaining capex.
Yamana Gold is trading at $2.59 per share with a market capitalization of $2.22 billion, a price to book (P/B) ratio of 0.54 and an EV to Ebitda ratio of -36.16.
Disclosure: I have no positions in Yamana Gold.
